eToys Ready For Holiday Rush
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Last Thursday I wrote that e-tailers should enjoy a resurgence on Wall Street as holiday shopping activity picks up momentum.
Obviously some e-tail companies and stocks will fare better than others. Still, look for the sector as a whole to outperform most other sectors as the millennium winds down and spending gears up.
Of all the online merchants, though, I predict the season's big winner will be eToys. I've thought this for awhile, and after learning Tuesday that the Toys 'R Us deal with venture firm Benchmark Capital to develop an Internet toy-store unit has been abandoned, I'm even more convinced that eToys can emerge as the clear category leader.
This bodes well for the company's stock, which quickly plummeted after an impressive May 19 IPO that saw share price reach as high as $85. (ETYS) shares hit their low in Aug. 9, trading at $28.13. Tuesday afternoon shares of eToys were up to $38.75.
Online toy sales also are a fraction of what they will be. Jupiter Communications predicts Internet sales of toys and games to grow from $53 million this year to $555 million by 2002, while Forrester projects that by 2003, online toy sales will hit $1.5 billion. (Given that the current annual toy market is about $23 million, both of those estimates could be low.)
As early as we are in the adoption curve, there's a big opportunity this fall to permanently win the business of thousands of toy shoppers. With a strong brand name, a huge war chest from its $166 million IPO available for marketing and promotional efforts, and (perhaps most important) a well-organized, user-friendly site, eToys is in a position to capitalize.
Toysrus.com is not. Only recently spun off from its ailing bricks-and-mortar parent, toysrus.com is still trying to get its act together online. While the company has been promising a Web site redesign, its current site simply doesn't measure up to eToys'.
Founded in 1997, eToys had a spectacular fourth quarter last year, racking up $22.9 million, or 76% of its $30 million revenue for the fiscal year ended in March. Its success has attracted a number of competitors, from bricks-and-mortar toy sales leader Wal-Mart to Amazon.com, which opened a toy site in July.
I expect eToys to more than hold its own against its rivals. It clearly understands the needs of the online shopper, something that can't yet be said about Toys 'R Us or Wal-Mart, which reportedly is revamping its site for the holiday rush.
While shares of ETYS were a better bargain a week ago, I still see plenty of upside in coming months.
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